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Philippines embarks on long-awaited market reforms for renewable expansion

14 December 2021 Max Tingyao Lin

The Philippines has taken a step towards its climate goal by offering electricity users more options for purchasing renewable power, but experts say further utility market reforms are required to put the coal-reliant country firmly on a greener path.

In an effort to achieve a national target of cutting GHG emissions by 75% from a business-as-usual cumulative level of 3.34 billion metric tons in 2020-2030, Manila introduced the long-awaited Green Energy Option Program (GEOP) to promote renewable power expansion.

Under the GEOP, electricity users with a monthly average peak demand of 100 kW or higher can opt to acquire purely renewable energy in their supply contracts from 3 December.

"By allowing commercial and industrial customers freedom to choose 100% renewable energy, the GEOP offers a modest, incremental improvement in offtake options," Simon Cowled, a Singapore-based partner of law firm King & Spalding, told Net-Zero Business Daily.

Filipino power users had only been able to acquire renewable electricity though on-site installations, or, if their average peak demand exceeded 500 kW per month, sign power purchase agreements via the Retail Competition and Open Access (RCOA) program. Launched in 2013, the RCOA is the first Filipino electricity marketspace that offers off-site purchases.

"The GEOP will promote the use of more renewables as it has helped to reduce the demand threshold for procuring renewable energy," IHS Markit Associate Director for Climate and Sustainability Joo Yeow Lee said.

"The threshold can be lowered further, to open up access to renewables to all customers that want them," he added.

Isabella Suarez, a Philippines-based analyst at the Centre for Research on Energy and Clean Air, said the RCOA failed to promote the green transition much as it did not guarantee all energy could come from renewable sources. But she suggested the GEOP could play a bigger role in the country's green drive.

In July, Toyota Motors, Yokohama Tire, and some multinationals teamed up with Filipino energy suppliers like Ayala's AC Energy to call for the full implementation of GEOP in a joint statement.

This appeared to be the push Manila needed: while the program was first mentioned in the Renewable Energy Act of 2008, the government rushed through its implementation rules in August.

"I think the GEOP has the potential to rapidly scale renewable deployment in the Philippines and lower the price for electricity, starting with large commercial and industrial energy users by allowing them to opt for 100% renewable energy generation," Suarez said.

"The fact that the push for the GEOP's full implementation—after more than going a decade unenforced—was driven by multinationals like Toyota and domestic conglomerates like Ayala shows that there is real excitement and buy-in that could push even more momentum and clean tech adoption," she added.

Alberto Dalusung, energy transition adviser at the Manila-based Institute for Climate and Sustainable Cities, suggested that the government should loosen trading rules under the program to trigger greater uptake.

For now, the GEOP requires sellers to hold a Retail Electricity Supply (RES) license. "An RES license is intended for companies whose main business is electric power trading. A renewable energy developer may only wish to sell its generation and not develop a portfolio of power supply assets," Dalusung said.

Ambitious renewable goals

In October, the Philippines set targets of generating 35% of its electricity from renewable sources by 2030 and 50% by 2040 to help counter global warming.

This came after renewables' share of the generation pie fell to 21% in 2020 from 34% in 2008, with the country opting to expand coal-fired generation to meet rising electricity demand in the 2010s. The Philippines had 7.62 GW of installed renewable capacity as of the end of 2020, including 3.78 GW of hydropower and 1.93 GW of geothermal power.

According to the government's October pathway, the Philippines needs to increase its installed capacity by 21.9 GW by 2030, including 18.6 GW of solar power and nearly 2 GW of hydropower. Another 51.9 GW must be added between 2031 and 2040 to hit the renewables target, including 26.6 GW of solar facilities, 14.4 GW of hydropower, and 10.6 GW of biomass-fired power plants.

Manila has stressed that the country requires support from foreign governments and international investors for its energy transition. The government recently signed up for the Organisation for Economic Co-operation and Development's Clean Energy Finance and Investment Mobilisation Programme in a bid to create more renewable investment opportunities.

Observers said the country should also streamline the renewable project application process, create more financial incentives for electricity users, and improve the transmission grid to promote green power expansion.

In June, Filipino Energy Secretary Alfonso Cusi openly blamed state-owned utility National Grid Corp. of the Philippines for not maintaining the power infrastructure.

"Energy storage, better connectivity, and more active demand-side responses are three key options for redressing the variability issue that may arise from a higher level of renewable penetration in a power system," Muyi Yang, an electricity policy analyst at think-tank Ember, said.

"The government may consider implementing policy reforms aimed at pursuing these options while seeking to promote the uptake of renewable generation in its power system," he added.

Bullishness in private sector

In spite of the perceived challenges, there has been enthusiasm among the country's private sector in increasing renewable usage.

Senior executives from Ayala and Lopez Inc.'s First Philippine Holdings expressed their belief in the low-carbon transition during COP26. Solar Philippines, the country's largest solar player, is aiming to list the shares of a subsidiary on the Philippine Stock Exchange following a P$2.7 billion ($53.6 million) initial public offering this month.

Suarez was encouraged by the government's recent ambition and Filipino businesses' interest in the renewable market. "I think the building blocks are all there, even if, at this moment in time, the 2040 target seems to not yet be within reach," she said. "The country is quite serious about becoming a renewable player."

But there are concerns that Manila is only taking baby steps towards the phaseout of coal-fired power plants, which accounted for 57.2% of the Philippines' electricity mix last year.

After promising to stop approving new coal plants last year, the Filipino government refrained from committing to ceasing their construction and ending direct government support for them during COP26.

"The Philippines' electricity market is dominated by a few large conglomerates comprising big energy companies and banks … These conglomerates have tended to favor coal power projects," Yang said.

Looking forward, IHS Markit expects the country to miss its 2040 renewable capacity target by almost a decade despite an expected rapid expansion of solar power.

"The country is relying heavily on hydropower and geothermal to meet its targets, and it has been challenging to develop these resources, resulting in capacity being relatively flat over the past decade," Lee said.

Also, Manila has been slow in increasing feed-in tariff quota for wind power developers lately. "Wind development has been relatively muted over the past few years and likely will be over the next few as well, so there goes another option to add renewable capacity," he added.

Posted 14 December 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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